Aviation Industry Faces Growing Concerns Amid High Aviation Fuel Prices

Recent Barrel Price Surpasses $110
Fixed Costs Account for 20-30%

[Asia Economy Reporter Yoo Hyun-seok] The burden on the aviation industry, which has been struggling due to the closure of air routes caused by COVID-19, is increasing. This is because the price of aviation fuel (jet fuel) is soaring to unprecedented levels following the outbreak of the Russia-Ukraine war.

According to the aviation industry and Bloomberg on the 28th, the price of aviation fuel recently surpassed $110 per barrel, rising nearly $10 in just over a month. In particular, it surged 65.89% after recording $64.5 on February 25 last year.

The main cause of the oil price increase is supply and demand instability. After showing an upward trend since last year, the price has risen more steeply recently following Russia's invasion of Ukraine this month. Generally, fuel costs account for 20-30% of airline operating expenses. In the case of Korean Air, a $1 change per barrel in oil price results in about $30 million in profit and loss fluctuations. In fact, as oil prices continuously rose last year, the company spent 1.8 trillion won solely on fuel costs, a 44.3% increase compared to 1.2474 trillion won in 2020.

In particular, the price of aviation fuel is likely to continue rising. If sanctions against Russia become a reality, disruptions in crude oil production are expected to push prices higher. Eugene Investment & Securities projected the March oil price band to be $90-$110 per barrel based on West Texas Intermediate (WTI) crude oil.

As oil prices surge, the burden on consumers is also expected to increase. Next month, the international fuel surcharge will be raised by 4 levels compared to this month, applying level 10. For international flights, a distance-based surcharge ranging from 18,000 to 138,200 won will be imposed per one-way trip. Additionally, domestic flight surcharges will increase from 5,500 won this month to 8,800 won in March. Although international flights have not yet fully resumed, an additional amount is charged on airfares, inevitably increasing the burden on consumers.

An aviation industry official explained, "International passenger demand has sharply declined due to COVID-19 and other factors," adding, "In this situation, the rapid rise in aviation fuel prices is a negative factor that worsens the profitability of the aviation industry."

This content was produced with the assistance of AI translation services.